ASIA — Asian stock markets experienced a broad decline on Tuesday as intensifying competition in artificial intelligence technology unsettled investors and raised questions about the sector’s future earnings potential.

The MSCI Asia-Pacific index excluding Japan fell more than 2%, reaching its lowest level since late July. Semiconductor manufacturers and other companies linked to the AI investment boom led the losses, while government bonds gained as investors shifted toward safer assets.

South Korean chipmakers suffered some of the steepest declines. Samsung shares dropped 8%, and SK Hynix fell 10%. Taiwan Semiconductor Manufacturing Company (TSMC) lost 1.8%, while Kioxia Holdings plunged 14%. SoftBank, a major investor in AI businesses, declined 8%.

The downturn followed a sharp sell-off in U.S. semiconductor stocks. Reports of technological progress by Chinese company ChangXin Memory Technologies (CXMT) fueled concerns that manufacturers in China could reduce the competitive advantage held by established international chipmakers.

These developments have prompted investors to reassess whether the semiconductor industry can sustain its current levels of profitability as competition intensifies. Charu Chanana, chief investment strategist at Saxo, said investors were questioning the strength of future AI demand and whether exceptional profits and margins could endure.

The market decline spread across the region. South Korea’s KOSPI index dropped more than 6%, recording its steepest single-day fall since July. Japan’s Nikkei declined 2.6%, while Taiwan’s stock market fell 2%. CXMT shares lost as much as 5.3%, hitting their lowest level since the company’s initial public offering in July. China’s blue-chip index also slipped to its lowest point in more than a year.

The sell-off reflects a change in how investors are evaluating the AI sector. Investment tied to artificial intelligence has supported corporate earnings and economic growth over the past four years. However, market participants are increasingly scrutinizing whether that spending will deliver adequate returns and how those returns will be divided as competition grows.

Bond markets moved in the opposite direction. The benchmark U.S. 10-year Treasury yield fell 5 basis points to 5.193%, moving further below the 24-year high of 5.364% reached the previous week. Investors turned to government debt following the recent increase in borrowing costs.

Despite the demand for bonds, persistent inflation, elevated energy prices and substantial government borrowing continue to present challenges to a sustained recovery in the market, according to Saxo’s Chanana.

Investors were also looking ahead to U.S. inflation figures due Wednesday and quarterly earnings reports from major banks. JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo were scheduled to release results later Tuesday. Their reports could offer insight into how higher Treasury yields are affecting lending activity, funding expenses and dealmaking.

Tencent Holdings’ planned bond sale also offered an indication of investor appetite for businesses associated with artificial intelligence. The Chinese technology company expected to raise at least $4.5 billion through dollar-denominated and offshore yuan bonds.

With semiconductor competition increasing, borrowing costs remaining elevated and key economic data approaching, investors are taking a closer look at whether the AI investment boom can continue generating the returns they have come to expect.

Original article